If you're afraid to apply for a new mortgage, you're not
A recent telephone survey of 1,005 U.S. adults conducted for
loanDepot, an online mortgage company in Foothill Ranch,
California, found that 54 percent of people who said they'd like
to buy a home within the next two years hadn't pursued their goal
because they were afraid they wouldn't be able to get a
Who feared the most?
For those who don't own homes, many of which are younger would-be
, 56 percent say they were held back by the fear they wouldn't
qualify for a loan. A third of respondents who already own a home
but want to buy again within the next two years had the same fear
of not qualifying.
Buyers were afraid in part because they'd overestimated the
difficulty of the mortgage process, loanDepot suggested. The
survey found 43 percent of people who want to buy within two
years thought it would be more difficult to get a mortgage today
compared to a year ago. Only 18 percent of prospective buyers
said they thought it would be easier to get a mortgage now.
Homeowners who could benefit from refinancing were also fearful,
according to "Failure To Refinance," an April 2014 research
paper by economists at the University of Chicago and Brigham
Young University in Provo, Utah.
Studying a sample of 1.5 million home loans that existed in
December 2010, the economists found approximately 20 percent of
borrowers who could have refinanced and would have benefited from
refinancing, still hadn't done so. The study concluded this
inaction cost the typical borrow approximately $11,500.
So why didn't they
"The decision to refinance is typically complicated and
involves a large number of factors," the study concluded. "These
factors include the up-front costs associated with refinancing,
the probability of moving within a short period of time, a
discount factor on future savings, expectations about future
interest rate changes, current mortgage balance, risk preferences
and current and future marginal tax rates."
Fear of rejection
All of those financial concerns come with simple human emotions
like fear of rejection and feeling intimidated, says Mary
Gresham, a financial psychologist in Atlanta.
"Mortgages can be very complicated," Gresham says. "Most
people don't understand the closing costs, statements, points.
Those things are complicated to understand, and that is
Still, Gresham adds, a mortgage is "the only way most people
can get a home that they own."
For that reason, even those who are the fearful "force
themselves to go through the process if they feel they will be
successful in purchasing a home," she says.
Fear of knowing the truth
Some people don't apply for a mortgage because they'd rather live
in a home-buying fantasy than face the realities of the process,
says David Krichmar, a mortgage banker at Weststar Mortgage Corp.
in Sugar Land, Texas.
"People would rather start looking at homes and do all the
things that are fun, but they don't want to get preapproved
because they don't want to know the truth," he says.
This approach results in a common home-buying snafu: finding a
highly desirable home, but not being ready with the financing to
"At that time, they have to get preapproved, pick a lender and
have a lot of the process done. If you waste three days, come
Monday, that house isn't going to be available," Krichmar says.
"As much as you think (applying for) a mortgage is an
inconvenience, losing out on the house you want is an even bigger
Don't be afraid to get a mortgage
The best way to overcome fear is to get educated.
"People get more fearful of processes that don't have an
education component," Gresham says. "What helps a buyer get a
mortgage the most is having a Realtor who's encouraging and can
make a referral to a loan officer who's a good educator."
Kiki Calumet, executive vice president at A and N Mortgage
Services in Chicago, says the mortgage process is "really not
that difficult" for borrowers who work with a loan officer who's
upfront and explains what's required.
"There's a lot of bad press about how difficult it is to get a
mortgage and that scares first-time buyers," Calumet says. "But
if you are dealing with the right person and it's a comfortable
atmosphere, it's really not that difficult once you get your arms
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